The Nasdaq Composite has rallied more than 11% over the last month, but the tech-heavy index is still in bear market territory, trading 21% below its all-time high. That downturn was sparked by high inflation and rising interest rates, and growth-focused portfolios have been hit particularly. But there is a bit of good news mixed in with the bad.
Over the past year, many high-caliber businesses have seen their share prices plunge simply because some investors have lost their appetite for growth stocks in the current macroeconomic environment. And that creates a buying opportunity for patient stock pickers.
As investors calculate their best path through this bear market, here are two Nasdaq-100 growth stocks they might want to consider buying now and holding forever.
1. Zscaler: Protecting business-critical infrastructure and applications
Zscaler (ZS -1.49%) specializes in network security. Its zero-trust platform is fundamentally different from traditional on-premise solutions. Rather than routing all traffic through a corporate data center, Zscaler leans on artificial intelligence to inspect traffic and enforce security policies in the cloud. In that respect, Zscaler is a gateway that enables fast and secure connectivity to corporate resources from any device or location. But its portfolio also includes tools for cloud workload protection and digital experience monitoring.
Zscaler's platform -- known as a secure access service edge (SASE) -- runs across 150 global data centers and captures 300 trillion security signals each day, making it the largest security cloud in the world. That edge allows Zscaler to deliver more effective network security than any rival. To that end, research company Gartner has recognized Zscaler as an industry leader for 11 consecutive years.
Financially, the company is firing on all cylinders. Revenue soared 61% to $970 million over the past year, and free cash flow (FCF) climbed 45% to $184 million. To add, remaining performance obligation (RPO) grew 83% to $2.2 billion. That bodes well for the company because RPO is a leading indicator of future sales.
Looking ahead, management puts its market opportunity at $72 billion, and Gartner believes 60% of enterprises will have plans to adopt SASE solutions by 2025, up from 10% in 2020. That tailwind should keep Zscaler in growth mode for years to come. And while the stock still trades at a pricey 23.6 times sales, that multiple is significantly lower than the three-year average of 37.4 times sales, which makes now a good time to buy a few shares.
2. Adobe: Powering creativity and personalized digital experiences
Adobe (ADBE -0.77%) is one of the most diversified software companies in the world, with solutions that span from digital media to digital experience. Through the former segment, Adobe offers a number of creativity applications, many of which are market-leading products. That includes Photoshop for image editing, Premiere Pro for video editing, and After Effects for motion graphics and visual effects.
The digital media segment also includes software like Adobe Sign for electronic signatures and Adobe Acrobat for digital documents, which drive efficiency for brands by eliminating paper-based workflows. In 2021, the International Data Corp. recognized Adobe (alongside DocuSign) as a market leader in e-signature software.
Through its digital experience segment, Adobe provides a complementary suite of applications for analytics, marketing, and commerce. Its software allows brands to capture, understand, and utilize data to target content and personalize the customer experience across digital channels. Gartner recognized Adobe as the leader in digital experience earlier this year.
Financially, Adobe is growing at a steady clip due to solid results in both business segments. Over the past year, total revenue climbed 16% to $16.7 billion, and FCF rose 4% to $6.9 billion, which is equivalent to an impressive FCF margin of 41%. But investors have good reason to believe that momentum will continue.
Management puts its addressable market at $205 billion by 2024, and the company has outlined a strong growth strategy. Among other initiatives, Adobe is working to enhance collaboration through web-based versions of Photoshop and Illustrator, which allow creators to simultaneously view and edit the same content. Adobe has also positioned itself to be a key player in the metaverse with immersive content tools like Substance for 3D scene design and modeling and Aero for creating augmented reality experiences.
Currently, shares trade at 12.4 times sales, a discount compared to the five-year average of 15.3 times sales. That's why now looks like a good time to buy this growth stock.
